QE3 appears to gain support at Fed

by Michael Tarsala

Lending more credence to the possibility of another quantitative easing round, the Fed's No. 2 made the case for it last night in Boston.

Janet Yellen, the Fed's vice chair, warned of continued housing sector weakness, a slow-to-improve job market that risks becoming a longer-term problem, and the potential for destabilization emanating from Europe.

What jumped off the page was one of the slides from her presentation simply titled, "Downside Risk to Outlook": Her fears include:

• Impending "fiscal cliff"
• Potential for highly destabilizing developments in Europe and global financial markets
• Forecasters have repeatedly overestimated the strength of the recovery and still may be too optimistic
• Potential for cyclical unemployment to become structural if the recovery were to stall

You can read the full speech here.

The market started to rally this week partly on rising expectations for QE3.

But as of today, three voting Fed policymakers have now come out in support of more stimulus if the economy weakens.

What started as speculation now appears to have support at -- or at least near -- the top of the food chain.

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